The Income Tax Appellate Tribunal (ITAT), Mumbai, while directing readjudication, observed that the assessee has failed to establish the genuineness of the payment made for vacating the encroached land.
Shadawal Enterprises, the assessee‘s business premises, was involved in a search and survey operation under section 133A of the Income Tax Act on 03.02.2015.
According to the assessment order, the AO discovered that the Assessee-firm had debited a total amount of Rs. 3,30,66,526 after reviewing the list of expenses related to party-wise purchases. As a result, the Assessee was requested to provide full details of the purchases, along with ledger confirmations, bank details, and income tax information of the parties.
On perusal of party-wise purchases, the AO further observed that the Assessee has debited expenses towards the purchase from Ganesh Vithal Indore for encroached possession of the land. Thereafter, the Assessee claimed before the AO that Shri Ganesh Vithal Indore had encroached possession of the land and, as per the agreement MOU dated 04.07.2014, agreed to release the encroachment on consideration of Rs. 85,00,000/- against the settlement of encroached land.
To verify the claim, the AO issued summons to Ganesh Vithal Indore, whereby he was asked to file certain details/documents. However, Shri Ganesh Vithal Indore neither appeared nor responded by filing any reply. Therefore, the AO doubted the transaction and ultimately made the addition of Rs. 1,30,00,000/- as unexplained purchase expenses allegedly paid to Shri Ganesh Vithal Indore.
Aggrieved, the assessee filed a further appeal before the CIT(A) who dismissed the appeal. Therefore, the assessee filed another appeal against the order of the CIT(A) before the tribunal.
During the proceedings, Mani Jain, Counsel for the assessee, submitted that the payment was made by an account payee cheque, and Shri Ganesh Vitthal Indore has offered the amount received by him as Long Term Capital Gain in his own return of income. Ajay Chandra, Counsel for Revenue, supported the decision of lower authorities.
The tribunal observed that the assessee claimed to have paid Rs. 1,30,00,000/- to Shri Ganesh Vithal Indore for vacating the encroached land at Palghar. The AO summoned Shri Ganesh Vithal Indore; however, in spite of service of summon u/s 131 of the Act, Shri Ganesh Vithal Indore neither appeared nor filed any details/reply.
Further, the bench observed that Shri Ganesh Vithal Indore has shown the said amount of Rs. 1,30,00,000/- as deemed consideration under section 50C of the Act. Therefore, Ganesh Vithal Indore is also the appropriate person to establish his possession over the encroached property/land by submitting the relevant documents and/or other direct or indirect evidence.
After reviewing the facts and records, the two-member bench Of Prashant Maharishi (Accountant member) and N. K. Choudhry (Judicial Member) observed that it would be appropriate to remand the issue to the file of the AO for a decision afresh by summoning Shri Ganesh Vithal Indore. Therefore, the bench directed adjudication upon the genuinity of the transaction related to the encroached land.
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